All aboard the Gautrain, comrades
The South African Communist Party (SACP) has an indirect stake in the company that operates the multibillion-rand Gautrain project, despite the SACP having denounced it as “elitist”.
In July 2008, the J&J Group, co-owned by former trade unionists Jay Naidoo and Jayendra Naidoo, bought an 8% stake in the Bombela Concession Company, which had been awarded the contract by the Gauteng government to build and operate the Gautrain—and the SACP’s investment vehicle, Masincazelane, has shares in J&J .
The disclosure coincides with demands by Cosatu and the Democratic Alliance for transparency over whether people connected to the ANC were linked to the Gauteng freeway improvement project and will benefit from e-tolling.
The website of the J&J Group reveals that the Masincazelane Trust, the black empowerment investment holding company Ditikeni and the South African Commercial, Catering and Allied Workers’ Union, a Cosatu affiliate, jointly hold a 5% stake in the group.
In a recent interview, Livhu Nengovhela, chief executive of Masincazelane Investments, which is associated with the trust, confirmed this holding.
Before SACP deputy general secretary Jeremy Cronin became deputy transport minister, he was fiercely opposed to the Gautrain project. In March 2008, as chairperson of Parliament’s transport committee, he lamented the spiralling costs of the project, which were rising “quietly and below the radar screen”.
Beyond workers’ means
Cronin and the SACP have repeatedly criticised the state-of-the-art service for being beyond the means of the average worker and for bypassing black townships.
However, the Mail & Guardian reported that when Cronin, then deputy transport minister, handed over the safety permit to Bombela in June 2010 before the Soccer World Cup, he shouted: “Viva, Gautrain! Viva!” And then added: “Above all, viva, public transport, viva!”
Cronin acknowledged at the time that he had previously been critical of the Gautrain and would have liked to see a more “transformational” route and more debate about the rail gauges used.
But, he added, there were also many positives and he was not going to be a “party pooper”.
The M&G could not reach Cronin for comment this week, but SACP spokesperson Malesela Maleka was adamant that neither Cronin nor the party had moderated their opposition to the project.
“Even if Masincazelane does indeed have a shareholding in J&J, the SACP has never allowed these shares to stand in the way of a consistent and principled stand in criticising the Gautrain project,” Maleka wrote in an emailed response to questions.
He said that the SACP and Cronin had been critical of the project as “an extremely expensive project directed narrowly at servicing a small elite market at a time when Gautengers face major problems of access and mobility.
“The Gautrain route assiduously avoids all the major areas of dense township settlement and, apart from Park and Pretoria stations, is exceedingly poorly integrated into transport systems,” he said.
He acknowledged that the SACP had set up Masincazelane, but insisted that it was an independent operation and that the party did not influence its day-to-day decisions.
However, at the SACP’s national congress at the University of Limpopo in 2009, Masincazelane was identified as a “key priority area”.
The conference resolutions reflect that the central committee was instructed to give “political and ideological clarity on the concept”, and that “contingency plans be [put] in place for monitoring of the investment”.
The J&J Group itself appears to have gone out of its way to hide the fact that a party investment vehicle is among its shareholders. Its website and a September 2005 announcement of Masincazelane as a new shareholder portrays it as a broad-based empowerment group—“a trust with over 30 local community groups, representing 30 000 active members”. No mention was made of the SACP.
Responding to questions about this, Jayendra Naidoo said this week: “Ask Masincazelane. I can’t give you information about their membership.”
Earlier this year the SACP took part in nationwide protests against the tolling of highways in Gauteng, despite the fact that the tolls could potentially boost the Gautrain’s passenger numbers.
In February, Gautrain Management Agency chief executive Jack van der Merwe told MoneyWeb that the suspension of the tolls could hurt the Gautrain by reducing the number of commuters.
Nengovhela would not divulge Masincazelane’s other interests, and said only that they were at an advanced stage of development.
Light at the end of the tunnel an oncoming deby burden
The Gautrain has been built (or almost built) for a cool R26.4-billion, but taxpayers could be propping up the Gauteng government’s prestige project for a good many years to come.
The Gauteng government is still burdened with loan repayments and an income guarantee for the operator, the Bombela Concession Company, which appear to be pushing the total cost of the project towards the R30-billion mark.
Asked to confirm this figure, Gautrain Management Agency chief executive Jack van der Merwe said: “You can’t add construction and operational costs to get a total. Any infrastructure that is built has an annual operational cost.”
The operational phase of the project has, in addition, suffered two setbacks: the postponement of e-tolling—seen as an important potential fillip to commuter traffic—and the continued closure of the Rosebank-Park Station line.
In 2001, when Gauteng finance MEC Jabu Moleketi first announced plans for the Gautrain, Van der Merwe publicly “guess-timated” its price at R7-billion.
“That figure, made before the detailed design, has haunted me ever since,” he said in a recent interview.
After the design and at net present values, the estimated price jumped to R12-billion. But this took no account of the environmental impact assessment, which resulted in nine changes to the network alignment. The assessment took three years to complete, necessitating an increase in capacity to meet higher-than-predicted passenger numbers.
Factor in the annual consumer price index increases and the South African Revenue Service’s decision to levy 14% VAT on the project and the figure balloons to R25.2-billion of the fixed-price contract signed in September 2006, with a further R1.2-billion-odd provided for escalations.
However, the contract between the Gauteng government and Bombela also envisages a 15-year operation and maintenance period.
In 2005, national government agreed to split construction costs 50/50 with the province, based on the “national importance of the Gautrain”, Van der Merwe said. But this cost-sharing agreement does not extend to phase two.
Gauteng is responsible for the Gautrain Management Agency’s administration costs in this phase, as well as for servicing a R5.2-billion loan used to help cover the cost of construction. Van der Merwe said R1-billion of this would be repaid at R184-million a year for the six-year repayment period, and the repayment schedule for the balance of the loan was under discussion with the treasury.
Most controversially, the contract features a “ridership guarantee”, in terms of which the province must make up any shortfall between Bombela’s actual income—from train, bus and parking fares and a 5% value-add from sources such as advertising space at stations—and its “minimum required total revenue” .
For the 2011/12 financial year, income support amounted to R300-million, although up to R400-million had been budgeted for 2012/13. Van der Merwe said that “in a worst-case scenario”, the patronage deal could cost R1.4-billion over a three-year medium-term expenditure framework cycle.
And after that? He said it was too early to predict costs further down the line. The hope was that after a three-year ramp-up period, with “the system stabilising as income rises”, the gap between income and the minimum required total revenue would shrink and with it the size of the income guarantee.
The public had embraced the airport line, with user numbers at projected year-15 levels. However, major risk factors standing in the way of a rapid fall in the ridership subsidy included continued snags on the final Rosebank-Park Station leg of the network, which remained closed at the time of writing, months after the planned opening, because of “water ingress”.
Van der Merwe emphasised that Bombela, not the province, was required to bear the R100-million in additional construction costs, which involves “iterative grouting” of the tunnel.
But the picture regarding general commuter traffic was “not so good” and the opening of the Park Station line could raise it by 20%.
The impact of Sanral’s Gauteng Freeway Improvement Project and the postponement of e-tolls had offset the cost inconvenience to commuters. This and massive fuel-price increases would have “a huge bearing on the quantum and duration of the ridership guarantee”. —Drew Forrest & Nelly Shamase
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The M&G Centre for Investigative Journalism, supported by M&G Media and the Open Society Foundation for South Africa, produced this story. All views are the centre’s. www.amabhungane.co.za.